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Africa’s Consumer Story: Demographics

Africa is home to more than one billion people, presenting a massive potential consumer market. Moreover, population growth remains rapid, so much so that the UN forecasts the continent’s population will surpass the 1.5 billion mark by 2030 and the two billion mark 15 years later. In addition, Africans are increasingly moving to cities, making it easier for companies to target certain consumer groups. Although the demographic make-up of the continent is extremely favourable, success is not guaranteed.

Vast differences across countries, the difference in opportunities at a city and at a national level, and how demographics translate in terms of economic growth and spending power, all have impact on potential success.

Africa’s Consumer Story

The crucial deciding factor will be economic policy, reforms, and job creation. In theory, an increase in the proportion of the working-age population relative to the total population (the so-called demographic dividend) is potentially beneficial for consumer spending as it frees up resources. But this will not happen if there is a high unemployment rate in the working-age population.

KPMG Africa has published a report entitled Africa’s Consumer Story. The aim of this study was to analyse the key drivers of the retail market in Africa, including key demographic and macroeconomic factors. In addition, we considered the broad outlook for the sector and highlight the countries we expect will have the biggest growth rates in the sector over the forecast period. In this article, we take a look at the Demographics component of the study.

Demographics

As mentioned, Africa is home to more than one billion people, and with population growth remaining rapid – in contrast to many other regions in the world where it is declining – the continent’s potential consumer market will become ever more relevant and impossible to ignore. According to projections from the United Nations (UN) Population Division, Africa’s population size will exceed 1.5 billion by 2030 and two billion by 2045.

By 2071, Africa is forecast to be home to close to three billion people, more than the projected combined populations of China and India at that time. The accompanying table highlights some of Africa’s key demographic indicators compared to China, India, Europe, and the US.

Growth and development

It is self-evident that a large population size is beneficial to
 the development of retail. However, while a high population growth rate increases the future size of the consumer market, it also lowers consumption per capita, ceteris paribus. Hence, the important indicator to monitor is income per person. Unfortunately, a perfect proxy for this is lacking due to inequality distorting per capita indicators such as GDP or consumption per head. We believe that, across the board, Africans will continue to get richer over the next decades, setting forth a trend that gained traction in the 2000s.

This will be driven by demographics, resources, improved macroeconomic policies, and lower political risk.

Screen Shot 2013-08-05 at 8.14.27 AM

Image Source: KPMG Africa: Africa’s Consumer Story

UN projections suggest that sub-Saharan Africa (SSA) will experience a prolonged period (between 1990 and 2075) during which its working-age population will expand at
 a faster rate than its overall population. The difference between the two growth rates is expected to reach a peak
 in 2035.

In North Africa, the change started some 15 years sooner, and is expected to last 20 years less. Although declining, SSA’s dependency ratio is still very high due to the large number of young people in the population. But towards the end of the current century, SSA’s dependency ratio is forecast to be lower than that of India, China, and North Africa. This period will give the region the chance to boost consumption spending power significantly, provided there is sufficient job creation.

Young people dominate the population

In contrast to the developed world where people are getting older and increasingly moving into retirement age while at the same time fertility rates have declined drastically, in Africa and other developing countries, young people still dominate the population; this is expected to continue to be the case for a number of decades to come. Thus, while in Europe and the US private and public funds will have to be directed at supporting the elderly, in Africa resources will be freed up as people go from being dependents to income generators.

Screen Shot 2013-08-05 at 8.14.40 AMImage Source: KPMG Africa: Africa’s Consumer Story

Urbanisation

Since purchasing power in urban areas is usually higher than in rural areas, while infrastructure is also of better quality, studying urbanisation trends is key to understanding consumption patterns. From 1990 onwards, there was a rapid increase in China’s urbanisation rate, rising from 26.4% in 1990 to 49.2% in 2010, and projected to increase to above 65% by 2025.

In SSA, the urbanisation rate increased from 24.1% in 1980 to 36.3% in 2010. There are however vast differences within SSA; the urbanisation rate of East Africa is much lower than the rest of the SSA region, and projected to remain lower over the next few decades as well. The fact that East Africa has such a low urbanisation rate is understandable given the importance that subsistence agriculture still plays in the economies of these countries. For SSA as a whole though, the urbanisation rate is projected to continue to increase at a rapid pace, reaching 43.2% in 2025.

Keep an eye out for more from Africa’s Consumer Story…
David Okwara

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One Response to Africa’s Consumer Story: Demographics

  1. Andrew September 23, 2013 at 8:48 am #

    Isn’t S.A part of Sub – Saharan Africa? Why classify it separately in your table of Africa’s demographics vs. other regions.

    Good info though.

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